By KARL SETZER
Market Analysis 

The quarterly stocks report was released on Sept. 30, and contained few surprises for trade. As of Sept. 1 the United States was holding 191 million bushels of soybeans, 1.73 billion bushels of corn and 2.08 billion bushels of wheat in storage.

While these were all just under average trade estimates, they are also all above the amount seen last year. The only significant change in the entire report was a reduction to last year’s soybean crop of 42 million bushels, resulting from an adjustment to acres and yield.

We are still seeing weather conditions and forecasts impact today’s markets. While temperatures have in fact turned cooler, it does not appear as though any yield would be lost from an early freeze.

Trade is also monitoring the lingering El Nino now expected to last through the winter months. Historically, this event brings a warmer than normal winter season to the Midwest.

One of the most talked about El Nino factors is if it will transition in to a La Nina. There are eight similar years as this one when weather was impacted by an El Nino, and in five of these we did move in to a La Nina by spring.

That said, there is little correlation between the shift and how it impacted final yields and crop size. We also need to remember that today’s plant genetics are better suited for adverse conditions than those in recent years when either El Nino or La Nina took place.

Before long the focus on weather will shift from the United States to South America. At present most of the South American crop production regions are in favorable shape for planting. Those that are not are not at the point where planting can take place anyway, and likely will be by that time.

Trade will monitor the ongoing El Nino to see if it starts to affect South American production. Trade is also monitoring how fast soybean planting may take place in South America this year. In most years South American farmers try to plant as fast as they can, mainly to avoid rust infections that take place late in the growing season.

Farmers may choose to delay their seedings this year, though, and wait for perfect soil conditions before progressing. Adequate old-crop soybean reserves and elevated cash flows are allowing farmers to wait to plant their fields.

Albeit early, trade is already starting to pay attention to spring weather outlooks. Experts believe this winter we will see warm, dry conditions across much of the Corn Belt.

It is not out of the question these conditions could generate drought concerns if they persist long enough. Given current demand outlooks, this may be the best chance of seeing a fundamental rally in the market.

Research shows just how overpriced the United States is on corn in the global market. Buyers can currently book corn from South America at an $11-$16 per ton discount on corn from the United States. Buyers can also go to the Black Sea market and book corn or feed wheat at a $6 per ton discount to the United States.

This is the primary reason U.S. corn exports are down 30 percent from a year ago at this time, and off to their slowest start since 2005.

In most years demand for South American soybeans in the global market fades at this point and buyers instead come to the United States for needs. There are concerns that buyers may opt to keep sourcing needs from South America this year, mainly from currency exchange rates. The fact the U.S. soybean export program is already struggling means more interest than normal will be paid to this situation.

Concerns are building over future economics in the ethanol industry. The recent decline in corn futures has benefited ethanol margins, but profitability appears to be short-lived. This is from forecasts for depressed energy values to last for the next several months, possibly through 2016.

This could easily drop corn demand by the industry back to only the mandated level, which are 500 million bushels fewer than what is being forecast for use.

Karl Setzer is a commodity trading advisor/market analyst at Maxyield Cooperative. His commentary and market analysis is available daily on radio, in newsprint and on the Internet at www.maxyieldcooperative.com

The opinions and views in this commentary are solely those of Karl Setzer.

Data used for this commentary obtained from various sources are believed to be accurate.